02/27/2015

Alison Frankel on our brief in the US v. Newman insider trading case

I was intrigued by another amicus brief filed on the defendants’ behalf. Not the brief by onetime SEC defendant and billionaire sports team owner Mark Cuban, but the one by three professors as famous in the securities law biz as Cuban is in the rest of the world. Stephen Bainbridge of UCLA, Jonathan Macey of Yale and Todd Henderson of the University of Chicago argued in a brief docketed Thursday that the 2nd Circuit panel in the Newman and Chiasson case was exactly right on what constitutes a personal benefit to a corporate insider. (As it happens, the same three, along with Allen Ferrell of Harvard, also filed an amicus brief backing Mark Cuban when the SEC appealed the dismissal of its case against him to the 5th Circuit.)

Wait one second. How come Macey and Henderson got bold typeface but not yours truly? (Update: The squeaky wheel gets the bold typeface.)

The professors said that despite the SEC’s arguments in Dirks for the prohibition of all trades based on material, non-public information, the Supreme Court concluded blanket insider trading rules would “ultimately damage the overall health of the market, because they limit the incentives of market participants to seek out information on which to trade.”

Instead, the professors’ brief said, the Supreme Court came up with the “personal benefit” test, which was supposed to draw an objective line between tips passed by a corporate insider with an improper motive and information provided innocently. The Dirks opinion did say that an insider’s improper purpose can be to enrich a friend, but, according to the securities professors, the court “was not endorsing the proposition that an insider who discloses inside information to a ‘friend’ is therefore seeking a personal benefit.”

... The professors contend that the government interpretation – which the Justice Department and the SEC want the 2nd Circuit to enshrine in a reconsideration of the Newman and Chiasson decision – would undermine the free-market policy concerns at the heart of Dirks. They urged the 2nd Circuit to deny the government’s petition.

Bainbridge said in an email that he’s done about 10 such amicus briefs in his 25-year career and that the Newman filing reflects views he has been espousing on his blog, ProfessorBainbridge.com, for about a year.

Comments

I was intrigued by another amicus brief filed on the defendants’ behalf. Not the brief by onetime SEC defendant and billionaire sports team owner Mark Cuban, but the one by three professors as famous in the securities law biz as Cuban is in the rest of the world. Stephen Bainbridge of UCLA, Jonathan Macey of Yale and Todd Henderson of the University of Chicago argued in a brief docketed Thursday that the 2nd Circuit panel in the Newman and Chiasson case was exactly right on what constitutes a personal benefit to a corporate insider. (As it happens, the same three, along with Allen Ferrell of Harvard, also filed an amicus brief backing Mark Cuban when the SEC appealed the dismissal of its case against him to the 5th Circuit.)

Wait one second. How come Macey and Henderson got bold typeface but not yours truly? (Update: The squeaky wheel gets the bold typeface.)

The professors said that despite the SEC’s arguments in Dirks for the prohibition of all trades based on material, non-public information, the Supreme Court concluded blanket insider trading rules would “ultimately damage the overall health of the market, because they limit the incentives of market participants to seek out information on which to trade.”

Instead, the professors’ brief said, the Supreme Court came up with the “personal benefit” test, which was supposed to draw an objective line between tips passed by a corporate insider with an improper motive and information provided innocently. The Dirks opinion did say that an insider’s improper purpose can be to enrich a friend, but, according to the securities professors, the court “was not endorsing the proposition that an insider who discloses inside information to a ‘friend’ is therefore seeking a personal benefit.”

... The professors contend that the government interpretation – which the Justice Department and the SEC want the 2nd Circuit to enshrine in a reconsideration of the Newman and Chiasson decision – would undermine the free-market policy concerns at the heart of Dirks. They urged the 2nd Circuit to deny the government’s petition.

Bainbridge said in an email that he’s done about 10 such amicus briefs in his 25-year career and that the Newman filing reflects views he has been espousing on his blog, ProfessorBainbridge.com, for about a year.